{"id":33164,"date":"2018-04-06T06:00:41","date_gmt":"2018-04-06T11:00:41","guid":{"rendered":"http:\/\/olduvai.ca\/?p=33164"},"modified":"2018-04-06T06:00:41","modified_gmt":"2018-04-06T11:00:41","slug":"playing-for-all-the-marbles","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=33164","title":{"rendered":"Playing for All the Marbles"},"content":{"rendered":"

Playing for All the Marbles<\/a><\/h3>\n

Global Plunge Protection Teams must be ordering take-out food; every night is a long one now.<\/i><\/p>\n

The current stocks\/bonds game is for all the marbles,<\/b> by which I mean the status quo now depends on valuations and interest rates remaining near their current levels for the system to function.<\/p>\n

If interest rates soar and\/or stocks plummet, the game is over: pension funds collapse, tax revenues drop, debt based on high asset valuations defaults, employment craters and the much-lauded “wealth effect” reverses into a “negative wealth effect” (i.e. everyone looking at their IRA or 401K statement feels poorer every month).<\/p>\n

Let’s scan a few relevant charts to understand why this game is for all the marbles.<\/b> Given the systemic fragility of the global economy, a crash in one asset class or a rise in interest rates trigger defaults, sell-offs, etc. that forcibly revalue other assets<\/i>.<\/p>\n

So the Powers That Be can’t afford to let any asset crash, as a crash will bring down the entire system. Why is this so? The resiliency of the system has been eroded by permanent central bank\/central state intervention\/stimulus.<\/b> Withdrawing the stimulus means markets have to go cold turkey, and they’ve lost the ability to do so.<\/p>\n

Permanent stimulus creates dependencies and distortions<\/b>, and both the distortions and the dependencies introduce a host of unintended consequences. What’s the “market price” of assets? You must be joking:<\/b> the “market” prices assets based on policies of permanent stimulus and asset purchases by central banks.<\/p>\n

In effect, markets have been hijacked to function as signaling mechanisms<\/b>(everything’s great because your IRA account balance keeps going up) and as floors supporting pensions, insurance companies, IRAs\/401Ks, etc.<\/b>: all these financial promises are only plausible if asset valuations keep rising.<\/p>\n

Fly in the ointment #1:<\/b> equity valuations have lost touch with the real economy, as measured (imperfectly) by GDP:<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Playing for All the Marbles Global Plunge Protection Teams must be ordering take-out food; every night is a long one now. The current stocks\/bonds game is for all the marbles, by which I mean the status quo now depends on valuations and interest rates remaining near their current levels for the system to function. If […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[38,39,127,1849,353,431,587,3726,1302,5892],"class_list":["post-33164","post","type-post","status-publish","format-standard","hentry","category-economics","tag-asset-valuation","tag-assets","tag-charles-hugh-smith","tag-financial-markets","tag-gdp","tag-interest-rates","tag-of-two-minds","tag-plunge-protection-team","tag-status-quo","tag-valuation"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33164"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33164\/revisions"}],"predecessor-version":[{"id":33165,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33164\/revisions\/33165"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}